By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Finance Minister Enoch Godongwana was scheduled to table the 2025 Budget on 19 February-the first under the Government of National Unity. However, in an unprecedented eleventh-hour announcement, the budget was postponed to 12 March. The delay appears to centre on discussions regarding a potential VAT rate increase from 15% to 17%.
Ahead of the planned tabling, Treasury had shared budget documents-under embargo-with select media and economists, including one of our own. Despite the delay, the embargo has since been lifted. Below is a summary of the key elements contained in the budget document, keeping in mind that a new budget could be formally tabled on 12 March 2025.
Macroeconomic outlook
Treasury revised its 2024 GDP growth forecast downward from 1.1% to 0.8%, reflecting weaker-than-expected performance in agriculture and transport in 3Q24. However, the medium-term growth outlook remained cautiously optimistic, with GDP expected to rise to 1.9% in 2025-aligning with our forecast-and averaging 1.8% over the medium term.
Headline inflation was projected to average 4.5% in 2025, rising to 4.6% in 2026 as the VAT increase contributes to higher core inflation. Inflation is expected to moderate to 4.4% by 2027. A benign inflation outlook is supported by stable international prices, which should keep fuel price inflation muted over 2025-2027. However, geopolitical tensions remain a key risk to this forecast.
Week in review
The Quarterly Labour Force Survey (QLFS), a household-based employment survey (not seasonally adjusted), reflected an increase in total employment during 4Q24 by 131 669 q/q, following an increase of 293 840 in the previous quarter. The level of unemployment declined by 19 573 q/q, bringing the total number of unemployed individuals to 7 990 947. The faster increase in employment relative to unemployment resulted in the official unemployment rate falling by 0.2 percentage points (ppts) to 31.9%. The absorption rate also increased by 0.2ppts to 41.1%, the highest level since the 42.1% recorded in 1Q20—suggesting a steady improvement in the economy's ability to create jobs and absorb workers. Despite this, youth unemployment remains critically high. The jobless rate for the 15-24 age group fell to 59.6% (from 60.2%), while for the 25-34 age group it declined to 39.4% (from 40.4%). This data underscores the urgent need to accelerate pro-growth structural reforms to drive sustainable and inclusive economic expansion.
Retail sales growth moderated to 3.1% y/y in December, following a robust 7.6% increase in November. This figure fell short of the 4.1% volume forecast by a Reuters consensus. Month-on-month, sales volume edged down by 0.1%, from a 1.0% increase the previous month. Nevertheless, these numbers bode well for 4Q24 GDP growth.
Overall retail sales grew by 2.5% in 2024, rebounding from a 1.2% decline in 2023 and a 1.6% increase in 2022. While the impact of the two-pot pension withdrawal system is expected to diminish over time, we anticipate continued positive spending momentum into 2025. This outlook is supported by several factors: a recovery in household incomes driven by accelerating wages and moderating inflation; lower borrowing costs; improved domestic political risk and consumer sentiment. These factors should also contribute to stronger asset prices, strengthening consumer balance sheets and further fuel retail sales growth.
Week ahead
The leading business cycle indicator for December will be released on Tuesday. In November, the leading business cycle indicator expanded further by 0.6% m/m, slowing from the 1.1% increase recorded in October. The rise was driven by positive contributions from five of the ten constituent variables, with the largest boost coming from an acceleration in trend growth in new passenger vehicle sales and an improvement in the RMB/BER Business Confidence Index. Despite the slower monthly increase, the leading indicator rose 2.4% y/y, up from 1.9% y/y in October, marking the eighth consecutive month of annual growth. This aligns with our view of an economic upturn, with growth expected to recover from below 1% over the past two years to nearly 2% in 2025/26.
On Wednesday, data on consumer inflation for January will be released. Headline inflation lifted slightly to 3.0% y/y in December, from 2.9% previously, with monthly pressure of 0.1% that reflected slight contributions from fuel and food inflation. Headline inflation averaged 4.4% in 2024, down from 6.0% in 2023. We anticipate that inflation will lift to 3.2% in January; however, the revised basket weights and index base provide additional uncertainty. We see inflation remaining subdued in 1H25, albeit rising steadily into the second half of the year. In line with this, inflation should rise from the 3% levels in 1H25 to around 5% by the end of the year. This will be dictated by fading positive base effects and improving demand. Nevertheless, average inflation should remain anchored near the reserve bank's 4.5% target.
On Thursday, producer inflation data for January will be released. Producer inflation exited a two-month deflationary trend as expected, rising to 0.7% y/y in December. Monthly inflation edged up to 0.2% from 0% in November, driven by increases in petrol (0.4% m/m), diesel (3.1% m/m), and food (0.2% m/m). Excluding petroleum-related products, producer inflation moderated to 2.3% y/y from 2.6% y/y in November. Intermediate producer inflation, which tracks input costs in the production process, rose slightly to 5.8% y/y (0.6% m/m) from 5.7% y/y (0.4% m/m), reflecting persistent cost pressures and a low base from 2023. We expect inflation to remain subdued in 2025, supported by stable oil and commodity prices. However, risks remain, particularly from potential rand depreciation amid a stronger US dollar and global trade uncertainty, which could pressure producer costs.
Also on Friday, Private sector credit extension (PSCE) data for January will be released. In December, PSCE slowed, for a third consecutive month, to 3.8% y/y from 4.2% in November. Household credit recorded 3.0% y/y, slightly lower than the 3.1% growth in November, with lending activity remaining particularly weak in the unsecured credit space. Corporate credit remained steady at 5.4% y/y, supported by an acceleration in commercial mortgages (5.3% from 4.9%) and general loans (from 4.9% to 5.3%). Pulling in the opposite direction were commercial vehicle finance (from 5.9% to 5.2%) and overdrafts (from 8.9% to 5.9%).
Trade balance data for January will also be released on Friday. In December, the trade surplus stood at R15.5 billion, down from a slightly downwardly revised R34.0 billion (previously R34.7 billion) in November. This decline was driven by an 11.2% m/m drop in exports to R160.0 billion, while imports fell only marginally by 1.1% to R144.6 billion. Cumulatively, the trade surplus reached R196.1 billion in 2024, up from R130.0 billion in 2023. This aligns with our constructive current account forecast, which projects a deficit of 1.2% of GDP in 2024, improving from a 1.6% deficit in 2023.
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 18 Feb | SA | Unemployment rate % | 4Q | 31.9 | 32.1 |
| 19 Feb | SA | Retail sales % y/y | Dec | 3.1 | 7.6 |
| SA | Retail sales % m/m | Dec | -0.1 | 1.0 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 25 Feb | SA | Leading indicator | Dec | -- | 114.7 |
| 26 Feb | SA | CPI % y/y | Jan | -- | 3.0 |
| SA | CPI % m/m | Jan | -- | 0.1 | |
| SA | Core CPI % y/y | Jan | -- | 3.6 | |
| SA | Core CPI % m/m | Jan | -- | 0.0 | |
| 27 Feb | SA | PPI % y/y | Jan | -- | 0.7 |
| SA | PPI % m/m | Jan | -- | 0.2 | |
| 28 Feb | SA | Private Sector Credit Extension % y/y | Jan | -- | 3.8 |
| 28 Feb | SA | Trade balance R billion | Jan | -- | 15.5 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 88,873.33 | 1.2% | 4.9% | 21.8% |
| USD/ZAR | 18.35 | -0.8% | -1.0% | -3.0% |
| EUR/ZAR | 19.25 | -0.5% | -0.3% | -5.8% |
| GBP/ZAR | 23.23 | 0.0% | 1.7% | -2.7% |
| Platinum US$/oz. | 980.95 | -1.9% | 3.6% | 8.4% |
| Gold US$/oz. | 2,938.98 | 0.4% | 8.5% | 45.2% |
| Brent US$/barrel | 76.48 | 1.9% | -4.6% | -7.1% |
| SA 10 year bond yield | 9.89 | 0.3% | 0.8% | -9.4% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 0.9 | 1.9 | 1.9 | 2.1 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.1 | 2.0 | 2.2 | 2.4 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -3.2 | 3.7 | 3.6 | 4.9 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.4 | 4.4 | 4.6 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.0 | 5.4 | 4.5 | 4.4 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USD/ZAR (average) | 16.40 | 18.5 | 18.4 | 18.5 | 18.5 | 18.9 |
